Approving a secured business loan is one of the most difficult tasks for a business person especially if it’s a small business. It is said that the percentage of business loan getting rejected is much higher than that of being neglected. Does it reflect that the banks are ready to incur losses? No, they want to guaranteed about the retrieval of the loan amount and hence the strictness. Collaterals in this respect play the most crucial role for getting bank loan for business. Here is an assessment of the usual collaterals for business loan.
Real estate as a collateral comes with its own advantages and disadvantages. A residential or commercial property and even the equity of a property can be considered as collateral of business loan. Reports say that real estate is best kind of collateral of bank loan for business as they are most readily accepted. But in case situations get worse and your residential property is with the bank, then the situation turns risky- a fact that one needs to keep in mind.
Many business persons want to put their business equipment as collateral while they apply for business loan. It must be noted that equipments do not fetch that desirable amount of business loan as that of real estates. The reason is because the equipments usually do not match the value to the money that the business person is trying to draw a business loan of. Hence banks usually offer a loan amount which is below the market value of the equipment.
Business Inventory is the best option as collateral if the business you are currently running is that of product based. The paying off of the business loan becomes easier in this case. There is a third party auditor who goes for a valuation and inspection of the inventory before sanctioning the business loan. It must be noted that bankers do not usually prefer this collateral as bank loan for business only because in case of failure of repayment of loan amount, selling off the product to get money becomes a problem for the bank.
Paying Off Unpaid Invoices
This is a very simple collateral to apply for business loan. The business person needs to submit all the unpaid invoices to the bank and the bank gives just the enough fund to clear off the pending payments in the invoices. Banking experts suggest to go for this method of business loan. This is because it only pays off the pending payments but there is hardly anything left for future investment- actually incurring a loss of money.
Also Read: How to start business
It is a unique kind of business loan where all the assets- tangible and intangible associated with the business are used to seek to loan. The lender is in an extremely advantageous position in this kind of bank loan for business. In case of loss, the borrower is at extreme risk as he will lose his entire business.